Does it matter what business the firm is in; and does it matter for China?

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Table of Contents

Introduction
Analysis of Chinese economy and businesses
International management
Conclusion
Works Cited

Introduction

One of the long-standing questions amongst economists relates to whether management practices adopted by firms explain the difference in the level of their productivity especially in emerging economies (Bloom, Eifert, Mahajan, McKenzie, and Roberts 1). According to Green (8), every industry and economic sector is subject to external changes, which are in most cases uncontrollable and unpredictable.

However, the expertise and quality of management developed by a firm determines its ability to develop sustainable competencies and sufficient internal dynamic capabilities, thus enhancing its ability to cope with the external factors. International corporations are increasingly facing macro-environmental changes, which have profound and long lasting effects on their internationalisation processes.

Moreover, environmental changes also affect the management of international operations. The international aspect of business and management has changed significantly due to globalisation. Consequently, international management has become an important consideration in firms’ operations (Faria and Guedes 1).

As one of the emerging economies, China has notably been incorporated into the global economy. Most investors are considering the country as one of the optimal investment destinations. Consequently, the country has experienced a substantial increment in the volume of foreign direct investments over the past few years compared to Japan, Germany, and the US (Faria and Guedes 1).

In an effort to attain high economic growth rate, it is fundamental for the Chinese government to be concerned with how firms are implementing international management concepts. Thus, stakeholders should appreciate the significance of international management.

Various international management theories have been developed and they apply to different economic sectors. In light of this insight, this essay evaluates whether the economic sector within which a firm operates matters with reference to international management theory and its impact on China’s catch-up prospects.

Analysis of Chinese economy and businesses

Following the strategic transformation undertaken by China during the 1970s, the country’s economy has undergone rapid economic growth. Its average Gross Domestic Product [GDP] for the period ranging between 1978 and 2010 was 9.8 per cent, which was the highest during that period (Fung and Peng 5).

Over the past three decades, China has changed from being a planned economy to one of the most dynamic world economies. Some of the factors explaining the country’s high rate of economic growth include economic globalisation, adoptions of economic division of labour, adherence to market rules, and its active pursuit for a market economy (Fung and Peng 5).

Most Chinese firms are a new force within the world economy. Consequently, a significant proportion of firms are in their growth phase. However, they are experiencing innate deficiencies such as human resource management difficulties. Considering the fact that the country is in its growth stage of economic growth, most firms in China are copying and imitating their production processes.

A high rate of imitation and copying of products and services cuts across firms in diverse economic sectors in China. One of the factors promoting product imitation in the country is lack of adequate implementation of Intellectual Property Rights (IPR) mechanisms by the government.

Abraham, Konings, and Shootmaekers (8) assert that imitation of foreign products in China is widespread in all sectors such as the car, music, health care, luxury products, and the fashion sectors. However, imitation is prominent with regard to innovation and technology.

The ascent of the country to the World Trade Organisation has forced China to amend its legal framework with regard to IPR in order to promote foreign direct investment. However, this aspect has not deterred counterfeiters and pirates due to ineffective enforcement of the measures instituted to prevent massive violation of property rights (Abraham, Konings, and Shootmaekers 8).

One of the major limitations in the country’s effort to fight counterfeiters arises from the fact that the country relies significantly on administrative mechanisms rather than judicial mechanisms.

The manufacturing sector is one of the largest economic sectors in China. Most Chinese firms are investing in low-cost manufacturing in an effort to attain sufficient market leadership and stimulate the country’s economic growth (Fung and Peng 4). The manufacturing sector contributes a significant proportion to the country’s economic growth by creating employment and enhancing productivity.

The adoption of low-cost manufacturing by most firms is necessitated by the fact that the country is experiencing high savings rates, high exports, and a low rate of consumption. On the other hand, developed economies such as the US are characterised by a high rate of consumption and imports and a low savings rate.

Due to its over-reliance on low-cost manufacturing, China has been in a position to promote its exports hence leading to accumulation of a substantial volume of foreign exchange.

In a bid to stimulate the country’s catch-up prospects, firms in the manufacturing sector should consider undertaking their own innovation rather than imitate foreign technologies. This move will culminate in the creation of a substantial competitive advantage. One of the aspects that the firm’s management team should consider in its planning relates to investing in research and development.

This move will create an opportunity for the firm to exploit optimally the opportunities presented within and without the Chinese business environment. Despite their economic sector, Chinese enterprises should consider investing in new technology in order to be competitive and catch-up and surpass their competitors.

Some of the technologies that the firm should invest in include information technology such as cloud computing, investment in sustainable and green energy technologies. Over the past decade, the technology industry has become intensely competitive. This case highlights the need for firms to institute optimal competitive strategies.

To remain competitive, TCL, which specialises in development of consumer electronics such as television has been consistent in undertaking research and development thus enabling the firm to sustain its competitiveness over the past 30 years.

In addition to research and development, the Chinese enterprises should consider investing in development of a domestic ecosystem that fosters innovation and increased productivity. This aspect will aid firms in diverse economic sectors to cope with the competitive nature of the business environment.

International management

International management has undergone significant transformation over the past decade. Its development reflects the divergent context within which firms operate within the global business environment (Kriek, Beaty, and Nkomo 126). Currently, most Chinese firms have not been adequately globalised.

Fung and Peng (7) are of the opinion that globalisation of most Chinese firms is directly influenced by their respective goals, intensity of competition in their respective industry and the organisational capability developed. Consequently, businesses in different economic sectors have incorporated diverse globalisation strategies in line with their needs and strengths.

However, one of the major challenges that the firms will face relates to the fact that they will have to develop a strong network in order maximise their sales. The firm’s management team will be required to formulate strategies that will contribute towards optimal exploitation of their low-cost advantage (Fung and Peng 8).

In a bid to stimulate the country’s catch-up prospects, it is paramount for the firm’s management team to consider the option of incorporating international management (IM) theories. This element will enhance the country’s competitiveness in the global market. One of the IM theories that the firm should consider in its operations relates internationalisation (Zhou and Li 456).

Considering the role of information technology in improving firms’ productivity, it is fundamental for both large and small enterprises in China to consider investing in IT. However, one of the greatest hurdles that will be faced relates to the existence of sufficient knowledge and skills with regard to IT.

Thus, Chinese firms do not have sufficient comparative advantage with regard to technology, which explains why most firms in China imitate technologies from developed countries in an effort to develop their own products.

Imitation of products and services is not only limited to the technology sector but has also spilled over to the fashion industry such as the fashion shoe and apparel sectors. Currently, China leads with regard to textile and shoe exportation. Additionally, it hosts dynamic fashion weeks in Shanghai and Beijing annually.

However, the textile and shoe sectors face a major challenge from foreign high-end firms such as Nike and Addidas, which are venturing the industry. This case has presented a major threat with regard to the promotion of creativity amongst Chinese fashion designers.

Lack of creativity has adversely affected the competition of Chinese fashion products such as shoes due to imitation thus leading to the development of a perception that poor quality fashion products are made in China (Girod 2).

In the attempt to deal with this challenge, Chinese firms should consider incorporating the concept of outsourcing. Outsourcing entails the process through which a firm seeks the services of another fir to undertake a certain task on its behalf. The outsourcing process will provide the firm with an opportunity to develop sufficient skills and knowledge regarding utilisation of the identified technology in their production process.

As a result, firms will be able to ensure that the produce competitive products and services. The concept of outsourcing should not only be limited to manufacturing services, but should also extend to service firms. In their internationalisation effort, firms’ management teams should consider

In the attempt to improve their productivity and catch-up prospects, Chinese firms should adjust their operational models by incorporating the most effective internationalisation model. Through internationalisation, the Chinese firms will be capable of creating an avenue for positioning themselves as globalised entities hence enhancing their contribution to the country’s economic growth.

Some of the strategic options that the firms’ management teams should consider in their internationalisation management practices include exportation, licensing, franchising, adoption of contract manufacturing, and foreign direct investment. Exportation will provide the firms in various economic sectors such as the manufacturing and services sector with an opportunity to venture into the identified foreign market and sell their products or services.

However, it is paramount for firms to possess a comprehensive understanding of the foreign market prior to entry. This aspect will provide the firm with sufficient knowledge to avert possible challenges that might hinder their success.

Alternatively, Chinese firms in the manufacturing sector such as Semi conductor manufacturing companies should incorporate the concept of licensing in their effort to venture the international market. One of the ways through which the firms can achieve this goal is by leasing their IPR to a firm operating in the same industry in the host country.

Licensing will enable Chinese firms to incur minimal risk in the international market while at the same time create a sufficient platform for its products to be manufactured. Consequently, the Chinese firms will be in a position to pursue their low-cost manufacturing strategy and at the same time increase profitability via increased sales.

However, prior to licensing, the Chinese firms should ensure that the host country has an effective legal framework that ensures protection of IPR (Ireland, Hoskisson, and Hitt 159).

Franchising is another option that Chinese firms should incorporate in their internationalisation efforts. Firms especially in the services sector such as hospitality should consider incorporating the concept of franchising in their internationalisation efforts.

A comprehensive market research should be conducted in order to identify and select the most favourable partner to undertake franchising with for business continuity and prosperity. Franchising will provide Chinese service firms such as hotels and restaurants with an opportunity to maximise their profitability.

Chinese firms in various sectors such as the fashion industry, semi conductor manufacturing, and services sector should enter cooperative agreements with other partners. The incorporation of cooperative strategies will provide the firms’ management team with an opportunity to deal with the technology gap that the firms might be experiencing.

This assertion emanates from the fact that the firm will be in a position to gain access to sophisticated technology possessed by the partner. As a result, the firms will be capable of dealing with the challenge of having to copy or imitate another technology, which is a major hindrance to the firms’ competitiveness in the international market (Ireland, Hoskisson, and Hitt 159).

In addition to the above international management practices, it is fundamental for Chinese firms to consider investing in a green venture. The green venture will provide the Chinese firms to exploit the opportunities presented in the international market effectively. Green venture will entail the firms establishing subsidiary firms into the international markets.

This move will provide the firm with an opportunity to undertake full control of all the activities that the subsidiary firm is involved in during its operations. In their foreign direct investment efforts, the firms will be required to ensure that operational responsibility of the subsidiary firm rests upon experienced expatriates.

The expatriates deployed to the foreign market should possess sufficient knowledge and skills to ensure that the firms gain competitive advantage in the foreign market. This aspect highlights the importance of the Chinese firms conducting a comprehensive market research in order to indentify the prevailing market trends.

The incorporation of international acquisition is another strategy that management teams of Chinese firms should take into account. The Chinese firms should incorporate a comprehensive market research of the host country in order to identify potential firms to enter a merger and acquisition partnership.

However, the Chinese firms should incorporate formation of mergers and acquisition when venturing a foreign market whereby the countries have significant cultural differences (Ireland, Hoskisson, and Hitt 159).

By incorporating the above strategies, there is a high probability of the firms in different economic sectors enhancing the country’s economic growth prospects. However, the success of Chinese firms in their internationalisation effort will not only be dependent on the choice of the internationalisation strategy, but also on its implementation.

Additionally, business executives of Chinese firms in different economic sectors should be concerned on how effectively the model selected will contribute towards the firm attaining effective business operation considering the specific industry dynamics. In a bid to improve the probability of survival, effective international management models should be incorporated.

Some of these models relate to leadership, ensuring that the firm has quality personnel, and integration of effective organisational processes, technology, and organisational structure. Additionally, an effective mechanism to determine the effectiveness and performance of the strategy should also be incorporated (Fung and Peng 7).

According to Ireland, Hoskisson, and Hitt (159), monitoring the internationalisation strategy incorporated is essential in identifying challenges that the firm might be experiencing hence creating an opportunity for improvement (Bloom, Eifert, Mahajan, McKenzie, and Roberts 7).

Conclusion

The analysis conducted shows that China has undergone a significant economic growth over the past three decades. Some of the factors that have contributed to the high rate of economic growth include economic liberalisation adopted by the firm during the 1970s and the political reforms in the country. Consequently, China has become incorporated within the global economy.

Despite the high rate of economic growth, the country continues to lag behind in its economic development compared to other developed economies such as the US , Japan, Britain, and Germany. One of the factors hindering the country’s rate of economic growth arises from the fact most economic sectors especially the manufacturing sector have not developed sufficient competitiveness.

Therefore, the contribution of a majority of the economic sector to the country’s economic growth is through imitation and copying. This aspect illustrates the fact that the country has not developed sufficient comparative advantage to attract foreign investors. Additionally, the country does not have an effective legal framework to enhance innovation and creativity.

This trend is replicated across all the economic sectors. In a bid to break up from this trend, it is fundamental for the Chinese government and firms’ executives to invest in strategies that will contribute towards the development of the country’s competitiveness. Firstly, the Chinese government should ensure sufficient enforcement of the intellectual property rights.

On the other hand, business executives should consider incorporating strategies that contribute towards development of their enterprises competitive and comparative advantage. This move will contribute towards improvement in the survival rate of respective firm.

The analysis has also shown that competition due to the high rate of globalisation is one of the biggest challenges that Chinese firms are facing in their effort to contribute towards their country’s catch-up prospects. In a bid to deal with these challenges, Chinese firms irrespective of the economic sector should consider incorporating international management practices.

One of the strategies that they should incorporate in their management practices relates to internationalisation. Some of the internationalisations strategies that firms should consider while planning include the formation of strategic alliances such as joint ventures, mergers, and acquisition. Other strategies include franchising, exportation and licensing.

The success of Chinese firms in the international market is paramount in promoting the country’s catch-up prospects. The profitability of the firms will determine the country’s capability to develop a strong foreign exchange reserve base. In summary, one can assert that the economic sector within which a firm is does not matter, but what matters is its contribution to the country’s economic growth.

Works Cited

Abraham, Filip, Jozef Konings, and Veerle Shootmaekers. FDI spillovers in the Chinese manufacturing sector: evidence of firm heterogeneity? Leuven: Catholic University of Leuven, 2008. Print.

Bloom, Nicholas, Benn Eifert, Aprajit Mahajan, David McKenzie, and John Roberts. “Does management matter? Evidence from India.” The Quarterly Journal of Economics 128.1 (2013): 1-51. Print.

Faria, Alex, and Ana Guedes. What is international management? A critical analysis, Rio de Jeneiro: Pria de Botafogo, 2009. Print.

Fung, Edwin, and Yali Peng. Forces driving Chinas economic growth in 2012: New thoughts, new strategies, new initiatives, New York: KPMG, 2012. Print.

Girod, Stephane 2012. Five lessons for the Chinese fashion industry from the French. Web.

Green, Roy. Management matters in Australia, Sydney: Department of Innovation, Industry, Science, and Research, 2009. Print.

Ireland, Duane, Robert Hoskisson, and Michael Hitt. Understanding business strategy: concepts and cases, New York: Cengage, 2010. Print.

Kriek, Harun, Dave Beaty, and Stella Nkomo. Theory building in international management research: an archival review of preferred methods, Cape Town: University of Pretoria, 2009. Print.

Zhou, Kevin, and Caroline Li. “How does strategic orientation matter in Chinese firms?” Asia Pacific Journal of Management. 2. 24 (2007): 447-466. Print.

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